Tuesday, December 1, 2009

How NRG Energy Wants to Revive Nuclear Industry (NRG)

From Forbes:

One small power merchant thinks it can revive the faltering nuclear renaissance. How? Offload the risk.

On a dry dock in Yokohama sits 250 tons of steel forgings waiting to be assembled into the core of a nuclear reactor. After it is built it will be shipped to Bay City, Tex., 90 miles southwest of Houston, where it will join two nuclear plants built a couple decades ago. The forgings would enclose the reactor within a new nuclear power plant, the first built in the U.S. since 1990. Power from the reactor would spew forth starting in 2016.

That is the vision of David Crane, chief executive of NRG Energy ( NRG), the $7 billion (sales) Princeton, N.J. power company that wants to build the two-reactor project at a hoped-for price of $10 billion. Crane, 50, thinks he can pull the nuclear energy industry out of the mud and spark a renaissance with a time-honored strategy: use other people's money.

He's first seeking loan guarantees from the Department of Energy and the Japanese government (read: taxpayers) that would cover 80% of the project. That leaves $2 billion. Then there are a pair of partners--the city of San Antonio, which will end up with 40% of the equity, and another partner to be named by the end of this year, which will take another 20%. The plant's builder, Toshiba ( TOSBF.PK), is taking a small chunk. In the end NRG will have a financing bill of $700 million over seven years. On its existing business (full or partial stakes in 48 power plants, including the existing nuke at its Texas site), NRG already has cash flow from operations of $1.3 billion through three quarters of 2009, so having to come up with $100 million a year looks manageable.

"It's how to build a nuclear plant in this day and age," says Steven Winn, who runs NRG's nuclear venture. By that he means that construction delays, public opposition to nukes and uncertain energy prices undermine arm's-length financing. If you want to build a nuke, you round up some sugar daddies....MORE